Your Settlement Agreement Solicitor

Your Settlement Agreement Solicitor

Episode 16: How does my salary impact the settlement amount?

Hello, and welcome to another episode of Your Settlement Agreement Solicitor. I’m your host, Geoffrey Caesar, a solicitor of England and Wales with over 20 years of experience specialising in settlement agreements.

If you’re new here, this podcast is your ultimate guide to understanding the ins and outs of settlement agreements, employment law, and navigating the often tricky situations that arise when employment comes to an end. For my returning listeners, welcome back!

This episode tackles a key question that’s on many people’s minds when they’re offered a settlement agreement: How does my salary impact the settlement amount? Salary plays a significant role in determining your final settlement, but it’s just one of many factors to consider. Let’s break it down and look at how your salary affects each component of the settlement agreement.

Base Salary and Statutory Redundancy Pay

First things first: your base salary directly impacts any statutory redundancy pay you may be entitled to, particularly if redundancy is the reason for your departure. In the UK, statutory redundancy pay is calculated based on your weekly pay, which is capped at a statutory limit. So, if your salary is above the cap, your redundancy pay won’t be a true reflection of your earnings—it’ll be capped at the legal maximum.

That said, many employers offer more than just the statutory minimum as part of a settlement agreement. They might enhance the redundancy package, which is where your salary starts to play a bigger role.

Enhanced Redundancy or Termination Payment

Now, let’s talk about enhanced redundancy payments. Many employers provide an enhancement to statutory redundancy to avoid legal disputes and to smooth the exit process. Here, your salary can significantly affect the amount you receive, especially if you’ve been in the job for a long time or hold a senior position.

If you’re on a higher salary, it’s more likely that your enhanced payment will be larger. For example, an employer might offer a package based on a certain number of weeks’ or months’ pay for every year you’ve worked with them. The higher your salary, the more that payment will be worth.

Of course, this is negotiable. If your employer wants to avoid potential claims, they may be willing to offer an enhanced payment that’s closer to what you’d expect based on your earnings, rather than just relying on statutory limits.

Pay in Lieu of Notice (PILON)

Next up is pay in lieu of notice, or PILON. If your employer doesn’t want you to work your notice period, they’ll usually include an additional payment to cover that. PILON is calculated based on your salary, so the higher your earnings, the larger this component of the settlement.

For example, if your contract specifies a three-month notice period and your salary is £50,000 a year, your PILON payment would be around £12,500, covering those three months. The more senior your role and the longer your notice period, the more significant this part of the settlement could be.

Compensation for Loss of Office

Now, let’s look at compensation for loss of office. This is one of the more fluid aspects of a settlement agreement and can vary greatly depending on several factors, including your salary.

Employers often use your salary as a baseline when calculating how much compensation to offer for the abrupt end of your employment. This figure isn’t just about the income you’re losing but also the benefits and perks tied to your salary, such as bonuses, pension contributions, or commissions. The higher your overall compensation package, the more this part of the settlement could reflect those lost earnings.

Bonuses and Other Incentives

Speaking of bonuses—if your role includes performance-based incentives like annual bonuses or commission, these should be considered in your settlement. Some agreements will factor in lost bonuses, especially if your employment ends before you’re eligible to receive one. For example, if you’ve consistently received a £5,000 annual bonus, it might be possible to argue that your settlement should reflect this lost income.

Don’t forget about other benefits tied to your salary, such as healthcare, car allowances, or stock options. If losing these benefits will significantly impact your financial situation, they should be addressed during settlement negotiations.

Pension Contributions

Your salary also plays into the pension contributions made by both you and your employer. If your employment ends before retirement age, losing out on these contributions could have long-term financial consequences. In some cases, your settlement may include compensation to reflect this, particularly if a forced early retirement or pension access is involved.

If your pension contributions are a large part of your total compensation, don’t overlook this when discussing your settlement.

Future Job Prospects and Salary Impact

One aspect that often goes unnoticed is how your current salary can affect negotiations when considering your future employment prospects. If your salary is high, but the market for similar roles is tough, you could argue for a higher settlement sum to reflect the difficulty of securing another job at a comparable salary.

This becomes particularly relevant if you work in a specialised field or if the job market in your industry is challenging. Employers might be willing to offer more to cover the potential gap between jobs, especially if your earning potential in the future is uncertain.

Legal Claims and Salary as Leverage

Finally, if you’re considering legal claims—such as unfair dismissal or discrimination—your salary could influence how much compensation you’re entitled to. Higher earners, especially those in senior roles, may have stronger claims for financial loss if they believe their dismissal was unlawful. The potential payout from a tribunal may be greater, giving you more leverage in negotiating a settlement.

Employers often weigh up the costs and risks of facing legal claims and may offer a settlement based on what they believe a tribunal might award. The higher your salary, the higher that potential award, and the more negotiating power you have.

Wrapping Up

So, how does your salary impact your settlement? In a word—significantly. Whether it’s redundancy pay, PILON, bonuses, or compensation for loss of office, your salary forms the foundation of many aspects of your settlement agreement. That said, each situation is unique, and it’s always advisable to have a solicitor review your agreement to ensure that it reflects your true earnings and compensation potential.

If you’ve received a settlement offer and are unsure whether it accurately reflects your salary and entitlements, don’t hesitate to reach out. I’m always here to help you navigate these tricky waters and secure the best possible outcome.

Thanks for listening to episode 16 of Your Settlement Agreement Solicitor. I hope this discussion has helped clarify how salary impacts your settlement. As always, feel free to contact me through my website or social media with any questions or topics you’d like me to cover in future episodes.

I am Geoffrey Caesar, your settlement agreement solicitor.

Until next time, stay informed, and remember—your settlement is a step towards securing your future.